Huntington Bancshares Incorporated : Huntington Bancshares Reports $153.3 Million of Net Income, or $0.17 Per Common Share, for the 2012 First Quarter, up 21% from Both the Prior and Year-Ago Quarters; Declares Quarterly Dividend on Common Stock of $0.04 Per Share

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04/18/2012 | 12:00pm CEST

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Other specific highlights compared with 2011 Fourth Quarter:

1.13% return on average assets, up from 0.92%

11.6% annualized growth in tangible book value per share

3.40% net interest margin, up 2 basis points

17% annualized growth in average commercial and industrial loans

16% annualized growth in average total demand deposits

$56.0 million noninterest income increase including:

$23.0 million related to the $1.3 billion automobile loan
securitization and sale

Huntington Bancshares Incorporated (NASDAQ: HBAN; www.huntington.com)
reported 2012 first quarter net income of $153.3 million, up $26.4
million, or 21%, from $126.9 million in the prior quarter. Earnings per
common share in the current quarter were $0.17, up $0.03 from the prior
quarter. Net income in the year-ago quarter was $126.4 million, or $0.14
per common share.

Huntington today also announced that the board of directors has declared
a quarterly cash dividend on its common stock of $0.04 per common share.
The dividend is payable July 2, 2012, to shareholders of record on June
18, 2012.

Summary Performance Discussion Compared with
2011 Fourth Quarter

"We are very pleased with the quarter. By staying focused on executing
our strategic plan, we are making steady progress in improving long-term
profitability and adding to our earnings growth opportunities," said
Stephen D. Steinour, chairman, president and chief executive officer.
"This quarter's financial results contained two significant items. The
first was a gain relating to our recently announced FDIC-assisted
purchase of Fidelity Bank in Dearborn, Michigan. The other was an
addition to our litigation reserves. When looking at the performance
adjusted for those significant items, revenue is meaningfully higher
with noninterest expense, after considering seasonal FICA and other
payroll taxes, basically unchanged."

Net income in the first quarter was $153.3 million, an increase of $26.4
million, or 21%, over the prior quarter. The primary drivers of the
increase were a $56.0 million, or 24%, increase in noninterest income
and a $10.9 million, or 24%, decrease in provision for credit losses,
partially offset by a $32.4 million, or 8%, increase in noninterest
expense.

Net interest income increased $2.2 million, or 1%, from the prior
quarter. This reflected a $0.6 billion, or 1% (5% annualized), increase
in average earning assets and a 2 basis point increase in the
fully-taxable equivalent net interest margin to 3.40%. The 2 basis
points linked-quarter increase in the net interest margin reflected the
benefits from the 7 basis point reduction in the cost of deposit pricing
and an increase in low cost funding. However, there was a 5 basis point
negative impact from the mix and yield of earning assets and other items.

The increase in average earning assets was driven by organic growth
across several categories of loans. Average commercial and industrial
loans (C&I) growth was strong at $0.6 billion, or 4% (17% annualized).
Automobile loan origination levels remained strong throughout the
quarter. However, average automobile loan balances declined 19%,
reflecting the impact of the 2011 fourth quarter reclassification of
automobile loans into held for sale. Another automobile loan
securitization for $1.3 billion was completed on March 8, 2012. The
March 30 FDIC-assisted purchase of Fidelity Bank (see table 1 for
additional details) and the March 21 purchase of a $0.4 billion
portfolio of high quality municipal equipment leases had minimal impact
on average balances, although combined, add $0.9 billion to end of
period balances.

Average total core deposits were stable at $41.4 billion with the mix
continuing to shift from higher cost core certificates of deposit, which
declined $0.3 billion, or 4% (15% annualized), to lower cost total
demand deposits, which grew $0.6 billion, or 4% (16% annualized).
Average commercial noninterest bearing demand deposits increased $0.4
billion, or 4% (16% annualized), to $9.7 billion and, as we highlighted
in second half 2011, included approximately $1.0 billion of deposits
from several large relationships that are short term in nature.

"Net interest income increased as a result of not only strong loan
originations but also a higher net interest margin. This reflected our
continued focus on fundamentally changing our deposit mix to drive down
the overall cost of funds. Loan growth continued to reflect the positive
results of our strategic actions," Steinour noted. "C&I loans have been
growing for eight consecutive quarters. This quarter, C&I growth saw the
added benefit of the economic tailwinds we are beginning to experience
across much of our Midwest footprint. While utilization rates were
unchanged, commercial relationships grew at an 13.3% annualized rate and
have grown 16.0% since the 2010 first quarter."

Total noninterest income increased $56.0 million, or 24%. This included
a $23.9 million increase in gain on loan sales as the current quarter
included a $23.0 million gain associated with the automobile loan
securitization. In addition, the first quarter was positively impacted
by a $22.3 million increase in mortgage banking income. This was driven
by an $11.6 million net mortgage servicing rights (MSR) improvement and
a $10.1 million increase in origination and secondary marketing income.
Other income included an $11.4 million bargain purchase gain associated
with the FDIC-assisted acquisition of Dearborn, Michigan-based Fidelity
Bank.

Commenting on noninterest income trends, Steinour said, "The first
quarter is typically our seasonally lowest quarter for several
noninterest income items. The completion of our second automobile loan
securitization in the last six months and the low absolute level of
interest rates and shape of the yield curve, which enabled many
homeowners to refinance their mortgages at near record low rates,
positively impacted results."

"Consumer checking account households grew at a 14.2% annualized rate
during the quarter and were up 11.7% compared to a year ago. The percent
of consumer checking account households with four or more products or
services was 1.6 percentage points higher, up from 73.5% last quarter to
75.1%. The percent of commercial relationships with four or more
products or services at the end of quarter was 32.7%, up from 31.4% in
the prior quarter. These growth and cross-sell rates are why service
charges on deposits increased 11% from a year ago and why electronic
banking is only down $10.2 million over a similar timeframe. We have
already made up 20% of the electronic banking revenue lost due to the
Durbin amendment. These financial results point to the competitive
advantage we are building through our "Fair Play" consumer strategy that
is built on simply doing the right thing for our customers."

Noninterest expense increased $32.4 million, or 8%. This reflected a
$23.5 million addition to litigation reserves in other expense and the
prior quarter's inclusion of a $9.7 million gain on the early
extinguishment of debt (trust preferred securities). Personnel costs
increased $15.4 million, or 7%, most notably impacted by approximately
$9 million of costs related to the annual payroll taxes resets and other
benefit expense. Additionally, commissions and incentive compensation
expense increased due to improved performance metrics and results. These
negative impacts were partially offset by an $11.4 million decrease in
outside data processing and other services, as the fourth quarter
contained $5.0 million of expenses associated with the conversion to a
new debit card processor.

Steinour said, "Noninterest expense continued to run at levels above our
long-term expectations relative to revenue. Some of our more recent
strategic actions have yet to season while other recent actions have
resulted in clear cost reductions. For example, this quarter's sizable
decline in outside data processing and other services was primarily due
to the completion of the conversion to our new debit card processor."

The provision for credit losses decreased $10.9 million, or 24%, from
the prior quarter. This reflected a larger reduction of the allowance
for credit losses (ACL) than in the prior quarter due to the continued
improvement in credit quality as we gradually migrate toward normal
levels. The period end ACL as a percentage of total loans and leases
decreased to 2.37%, from 2.60%. However, the ACL as a percentage of
period end total nonaccrual loans (NALs) increased 9 percentage points
to 206% as NALs declined 14% to $467.6 million, or 1.15% of total loans.
Total net charge-offs (NCO) for the 2012 first quarter were $83.0
million, or an annualized 0.85% of average total loans and leases. This
was down $0.9 million, or 1%, from $83.9 million, or an annualized
0.85%, in the prior quarter.

Commenting on credit quality trends, Steinour said, "The continued
improvement in credit quality performance reflected the positive results
of the actions taken over the last three years to address credit-related
issues in our loan portfolio. Many of our credit quality performance
metrics remain elevated compared with long-term historical levels and we
expect continued improvement."

Capital levels continued to be strong. Our Tier 1 common risk-based
capital ratio at March 31, 2012, was 10.15%, up from 10.00% at December
31, 2011, with our tangible common equity ratio increasing to 9.86% from
9.75% over this same period. The regulatory Tier 1 risk-based capital
ratio at March 31, 2012, was 12.22% up from 12.11%, at year end, while
our Total risk based capital ratio declined slightly to 14.76% from
14.77%. This decline reflected an increase in risk-weighted assets due
to balance sheet growth.

"As announced March 14, we are pleased that the Federal Reserve
completed its review of our January capital plan submission and did not
object to our proposed capital actions," said Steinour. "This allows us
to maintain our common dividend through the first quarter of 2013. It
also gives us the potential to repurchase up to $182 million of common
stock. Reinvesting excess capital to grow the business organically
remains our first priority. Importantly, through dividends and now share
repurchases, we have the flexibility, subject to market conditions, to
return a meaningful amount of our earnings to the owners of the company."

Table 1 - FDIC-Assisted Fidelity Bank Acquisition

The following table summarizes the 2012 first quarter balance sheet
impact of the FDIC-assisted acquisition of Fidelity Bank completed on
March 30, 2012. Assets acquired and liabilities assumed were recorded at
fair value on the date of acquisition. All acquired loans accrue
interest as performing loans or as purchased impaired loans; therefore,
none of the acquired loans were reported as nonaccrual.

(in millions)

Cash and Deposits in Banks

$

98.9

Loans

520.6

Other real estate owned (OREO)

8.0

Other assets, including FDIC receivable

143.9

Total assets

$

771.4

Deposits

$

712.5

Other liabilities

47.5

Total liabilities

$

760.0

Expectations

"Some of the encouraging signs seen late last year continued to build
throughout the quarter and drove modest economic growth. Parts of the
Midwest region are recovering faster than the broader United States with
lower levels of unemployment, resurgence in manufacturing, and budget
surpluses for several states for the first time in years. While our
footprint has clearly benefitted from this recovery, the US and global
economies continue to experience elevated levels of volatility and
uncertainty. This requires that we remain cautious," said Steinour.

"As we have done since early 2010, we will continue to execute our core
strategy, making selective investments in initiatives to grow long-term
profitability. We will remain disciplined in our growth, including the
pricing of loans and deposits, and we are encouraged by the net interest
margin expansion this quarter. We continue to expect credit quality
improvement. We will stay focused on increasing customer cross-sell and
work to improve operating efficiency. We also have 18,000 new Fidelity
Bank customers, giving us a great opportunity to introduce them to our
products and services."

For the remainder of 2012, net interest income is expected to be
modestly higher than the first quarter level. The momentum we are seeing
in total loan and low-cost deposit growth is expected to continue. Those
benefits to net interest income growth are expected to be mostly offset,
however, by downward pressure on the net interest margin later in the
year due to the anticipated continued mix shift to lower-rate, higher
quality loans and lower securities reinvestment rates given the low
absolute level of interest rates and shape of the yield curve. The C&I
portfolio is expected to continue to show meaningful growth as our sales
pipeline remains robust with much of this reflecting the positive impact
from strategic initiatives to expand our commercial lending expertise
into areas like specialty banking, asset based lending, and equipment
financing. It also reflects our long-standing continued support of
middle market and small business lending. For automobile loans, we will
continue to evaluate another automobile loan securitization in the
second half of the year. Such securitizations allow us to continue to
expand this business while generating strong levels of originations that
would otherwise limit on-balance sheet automobile loan concentration.
Residential mortgages and home equity loans are expected to show modest
growth. CRE loans will likely continue to experience low levels of
declines from current levels as the runoff in the noncore portion of the
portfolio is partially offset by new core originations.

Excluding potential future automobile loan securitizations, we
anticipate the increase in total loans to modestly outpace growth in
total deposits. This reflects our heightened focus on our overall cost
of funding and the continued shift towards low- and no-cost demand
deposits and money market deposit accounts.

Noninterest income is expected to show a modest increase from the 2012
first quarter level after excluding the impacts of the automobile loan
securitization gain, the Fidelity Bank related bargain purchase gain,
and any net MSR impact. This growth is expected to primarily reflect
anticipated growth in new customers and increased contribution from key
fee income activities including capital markets, treasury management
services, and brokerage, as well as the continued positive impact of our
cross-sell and product penetration initiatives throughout the company.

For the full year, we anticipate positive operating leverage and modest
improvement in our expense efficiency ratio. This will likely reflect
the benefit of revenue growth as we expect expenses could increase
slightly. While we will continue our focus on improving expense
efficiencies throughout the company, additional regulatory costs and
expenses associated with strategic actions, including the planned
opening of over 40 in-store branches and integration of Fidelity Bank,
may offset such improvements.

Credit quality is expected to experience continued improvement. The
level of provision for credit losses is currently at the low end of our
long-term expectation, and we expect some quarterly volatility given the
absolute low level and the uncertain and uneven nature of the economic
recovery.

We anticipate the effective tax rate for 2012 to approximate 24%-26%,
which includes permanent tax differences primarily related to tax-exempt
income, tax-advantaged investments, and general business credits.

Huntington's senior management will host an earnings conference call on
Wednesday, April 18, 2012, at 10:00 a.m. (Eastern Time). The call may be
accessed via a live Internet webcast at www.huntington-ir.com
or through a dial-in telephone number at (877) 684-3807; Conference ID
63194598. Slides will be available at www.huntington-ir.com
about an hour prior to the call. A replay of the webcast will be
archived in the Investor Relations section of Huntington's web site, www.huntington.com.
A telephone replay will be available two hours after the completion of
the call through April 30, 2012 at (855) 859-2056; Conference ID
63194598.

Forward-looking Statement

This document contains certain forward-looking statements, including
certain plans, expectations, goals, projections, and statements, which
are subject to numerous assumptions, risks, and uncertainties.
Forward-looking statements may be identified by words such as expect,
anticipate, believe, intend, estimate, plan, target, goal, or
similar expressions, or future or conditional verbs such as will,
may, might, should, would, could, or similar variations.

While there is no assurance that any list of risks and uncertainties or
risk factors is complete, below are certain factors which could cause
actual results to differ materially from those contained or implied in
the forward-looking statements: (1) worsening of credit quality
performance due to a number of factors such as the underlying value of
collateral that could prove less valuable than otherwise assumed and
assumed cash flows may be worse than expected; (2) changes in economic
conditions, including impacts from the continuing economic uncertainty
in the US, the European Union, and other areas; (3) movements in
interest rates; (4) competitive pressures on product pricing and
services; (5) success, impact, and timing of our business strategies,
including market acceptance of any new products or services introduced
to implement our "Fair Play" banking philosophy; (6) changes in
accounting policies and principles and the accuracy of our assumptions
and estimates used to prepare our financial statements; (7) extended
disruption of vital infrastructure; (8) the final outcome of significant
litigation; (9) the nature, extent, timing and results of governmental
actions, examinations, reviews, reforms, and regulations including those
related to the Dodd-Frank Wall Street Reform and Consumer Protection
Act; and (10) the outcome of judicial and regulatory decisions regarding
practices in the residential mortgage industry, including among other
things the processes followed for foreclosing residential mortgages.
Additional factors that could cause results to differ materially from
those described above can be found in Huntington's 2011 Annual Report on
Form 10-K, and documents subsequently filed by Huntington with the
Securities and Exchange Commission. All forward-looking statements
included in this document are based on information available at the time
of the release. Huntington assumes no obligation to update any
forward-looking statement.

Basis of Presentation

Use of Non-GAAP Financial Measures

This document may contain GAAP financial measures and non-GAAP financial
measures where management believes it to be helpful in understanding
Huntington's results of operations or financial position. Where non-GAAP
financial measures are used, the comparable GAAP financial measure, as
well as the reconciliation to the comparable GAAP financial measure, can
be found in this document, the 2012 First Quarter Performance Discussion
and Quarterly Financial Review supplements to this document, the fourth
quarter earnings conference call slides, or the Form 8-K related to this
document, all of which can be found on Huntington's website at www.huntington-ir.com.

Annualized data

Certain returns, yields, performance ratios, or quarterly growth rates
are presented on an "annualized" basis. This is done for analytical and
decision-making purposes to better discern underlying performance trends
when compared to full year or year-over-year amounts. For example, loan
and deposit growth rates, as well as net charge-off percentages, are
most often expressed in terms of an annual rate like 8%. As such, a 2%
growth rate for a quarter would represent an annualized 8% growth rate.

Fully-taxable equivalent interest income and net
interest margin

Income from tax-exempt earning assets is increased by an amount
equivalent to the taxes that would have been paid if this income had
been taxable at statutory rates. This adjustment puts all earning
assets, most notably tax-exempt municipal securities and certain lease
assets, on a common basis that facilitates comparison of results to
results of competitors.

Earnings per share equivalent data

Significant income or expense items may be expressed on a per common
share basis. This is done for analytical and decision-making purposes to
better discern underlying trends in total corporate earnings per share
performance excluding the impact of such items. Investors may also find
this information helpful in their evaluation of the company's financial
performance against published earnings per share mean estimate amounts,
which typically exclude the impact of Significant Items. Earnings per
share equivalents are usually calculated by applying a 35% effective tax
rate to a pre-tax amount to derive an after-tax amount, which is divided
by the average shares outstanding during the respective reporting
period. Occasionally, when the item involves special tax treatment, the
after-tax amount is disclosed separately, with this then being the
amount used to calculate the earnings per share equivalent.

Rounding

Please note that columns of data in this document may not add due to
rounding.

About Huntington

Huntington Bancshares Incorporated is a $56 billion regional bank
holding company headquartered in Columbus, Ohio. The Huntington National
Bank, founded in 1866, provides full-service commercial, small business,
and consumer banking services; mortgage banking services; treasury
management and foreign exchange services; equipment leasing; wealth and
investment management services; trust services; brokerage services;
customized insurance brokerage and service programs; and other financial
products and services. The principal markets for these services are
Huntington's six-state banking franchise: Ohio, Michigan, Pennsylvania,
Indiana, West Virginia, and Kentucky. The primary distribution channels
include a banking network of over 660 traditional branches and
convenience branches located in grocery stores and retirement centers,
and through an array of alternative distribution channels including
internet and mobile banking, telephone banking, and over 1,300 ATMs.
Through automotive dealership relationships within its six-state banking
franchise area and selected other Midwest and New England states,
Huntington also provides commercial banking services to the automotive
dealers and retail automobile financing for dealer customers.